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With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Packaging Corporation Of America (NYSE:PKG).
Packaging Corporation Of America (NYSE:PKG) was in 16 hedge funds' portfolios at the end of the third quarter of 2019. PKG has seen a decrease in hedge fund sentiment lately. There were 21 hedge funds in our database with PKG positions at the end of the previous quarter. Our calculations also showed that PKG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's view the new hedge fund action encompassing Packaging Corporation Of America (NYSE:PKG).
What does smart money think about Packaging Corporation Of America (NYSE:PKG)?
At Q3's end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the second quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in PKG a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Packaging Corporation Of America (NYSE:PKG) was held by AQR Capital Management, which reported holding $60.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $19.4 million position. Other investors bullish on the company included Adage Capital Management, Gotham Asset Management, and Royce & Associates. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Packaging Corporation Of America (NYSE:PKG), around 0.49% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.31 percent of its 13F equity portfolio to PKG.
Because Packaging Corporation Of America (NYSE:PKG) has experienced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedge funds who sold off their entire stakes last quarter. It's worth mentioning that Israel Englander's Millennium Management sold off the biggest position of all the hedgies watched by Insider Monkey, valued at an estimated $93.1 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dumped about $4.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Packaging Corporation Of America (NYSE:PKG). We will take a look at Reinsurance Group of America Inc (NYSE:RGA), PulteGroup, Inc. (NYSE:PHM), NRG Energy Inc (NYSE:NRG), and EPAM Systems Inc (NYSE:EPAM). This group of stocks' market values are similar to PKG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RGA,25,476554,-1 PHM,28,826294,-3 NRG,46,1482443,4 EPAM,24,286367,1 Average,30.75,767915,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $768 million. That figure was $119 million in PKG's case. NRG Energy Inc (NYSE:NRG) is the most popular stock in this table. On the other hand EPAM Systems Inc (NYSE:EPAM) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Packaging Corporation Of America (NYSE:PKG) is even less popular than EPAM. Hedge funds dodged a bullet by taking a bearish stance towards PKG. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PKG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PKG investors were disappointed as the stock returned 5.5% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.